GameStop’s share price will not help the stores make more money.
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GameStop made big news when she the share price soared thanks to merchants on Reddit. The share price of the video game retailer has increased by more than 14.300%, but it has since dropped from $ 328 on Friday to $ 92 on Wednesday. Fans of the stock still hold their GameStop shares keep it with Wall Street and hedge funds, but do not be fooled, the company does not fare so hot.
The share price for GameStop does not tell the whole story about the company. One of the reasons for its stratospheric gain is indeed that so many institutional investors have dared to fail – to an absurd degree. This type of investment, known as short selling, has opened the door for individuals who have coordinated their efforts online to increase the price.
Stock prices have at some point always been detached from the reality for the average American (just step 2020 stock market gains against the pandemic economic collapse), but this GameStop roller coaster ride throws all logic and basic investment principles out the window. To those on the WallStreetBets subreddit, that’s the point.
Lost in all the hoops is that GameStop continues to falter when it comes to all the key metrics for a company, with declining sales and the closure of 462 stores last year. Let’s look at the performance of GameStop as a real business, and not just as the goal of some enthusiastic individual investors.
Look at this:
What does GameStop’s brilliant inventory have to do with …
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How about GameStop really do?
Not so great. According to the fiscal earnings report for the third quarter from December, GameStop’s sales fell by 30% over the previous year. And it was during a pandemic, when the video game industry experienced months of increased income while Americans stayed home and played games due to lockdown. But sales in retail stores have suffered due to the closure of locations or the limited flow of customers due to the same closures.
Meanwhile, digital sales for games have reached new heights. Major publishers such as Sony, EA and Take-Two reported that digital purchases surpassed physical sales in 2020 Daniel Ahmad, an analyst at Niko Partners. Microsoft’s Game Pass, which gives gamers access to more than 100 games for $ 15 a month, has hit 18 million subscribers, CEO Satya Nadella said on the company’s revenue in the second quarter.
EA said 52% of total console sales for the past 12 months were via digital download
As a reference, Take Two says that the ratio was 55% for FY2020
Sony said 51% of all games sold on PS4 in FY2020 were digital
In other words. We are entering next generation with digital> 50%
– Daniel Ahmad (@ZhugeEX) 30 July 2020
Cloud Games also grew in 2020. Microsoft’s xCloud and Nvidia’s Geforce Now launched last year, thereafter Google Stages service, which appeared at the end of 2019. These services allow players to stream games without the need for physical copies of games or even consoles.
In September 2019, George Sherman, CEO of GameStop, tried to get gamers back into stores by turning a few test stores into a hangout for customers. But the company closed 462 stores in 2020, with plans to close more than 1,000 stores in March. It still has more than 5,000 stores in the US.
What is the company worth?
On December 1, GameStop’s share price was $ 15.80 per share, giving a market value of just over $ 1 billion. As of Friday, the trader’s shares traded at $ 325 apiece, valuing the company at more than $ 22 billion. That put it at number 464 on the Fortune 500 list, directly behind video player publisher Activision Blizzard. The rise in the share price has boosted the value of GameStop over the value of game publishers Ubisoft, Take-Two and Square Enix. On Wednesday, the stock rose slightly to $ 92.41, bringing the company’s market capitalization to $ 6.4 billion.
Will GameStop go out of business?
Although the retailer has struggled over the past few years, it was not before death.
“I actually think they’s in a good position to grow revenue and earnings again with the launch of the console,” said Wedbush analyst Michael Pachter. “Such an earning power supports a price in the high teens or low 20s.”
Pachter owns GameStop’s stock at a target price of $ 16. Keep in mind that this is only one analyst’s rating.
The retailer has received help over the past few months thanks to the release of the PlayStation 5 and Xbox Series consoles. Both are still in high demand and sell fast when they are in stock. GameStop reported $ 1.7 billion in sales this past holiday season. Online sales accounted for 34% of total holiday sales, an increase of 300% over the previous year.
GameStop said it would bring Matt Francis, an engineering leader at Amazon Web Service, to the company’s first chief technology officer, according to a Marketwatch report on Wednesday. He will oversee GameStop’s e-commerce operations when it launches on February 15.
What is important to know is that the high prices of GameStop are not equal to financial success. It still has issues that need to be addressed.
Remember that if you decide that it’s a roller coaster, you want to venture out.